Jenny's Soup Kitchen is a nonprofit that provides funding throughout the Philadelphia area to run soup kitchens
Question:
Jenny's Soup Kitchen is a nonprofit that provides funding throughout the Philadelphia area to run soup kitchens for the city's homeless population. Dave Cambridge, set up an endowment to provide aid to Jenny's operating budget. Dave's family set up the endowment as a tribute to their father who developed dementia and spent his days wandering the streets of Philadelphia as a homeless person. The fund has assets of $5 million, and the directors of the endowment anticipate a spending rate of 6%. Inflation is expected to be 3% annually.
A1. Calculate the return objective for the fund. Show your work.
A2. Explain one factor that increases and one factor that decreases the fund's risk objective. Each factor must be based directly on the information provided. Using that, draw an overall conclusion for the risk objective.
A3. State the time horizon for the fund.
B. From the following asset allocations, select one allocation that best serves the needs of the endowment and justify its selection by discussing return, diversification and efficiency.
| Asset Classes | Exp Total Return | Cash Flow Yield | Portfolio A | Portfolio B | Portfolio C | Portfolio D |
| U.S. Stocks | 12% | 2.0% | 20% | 40% | 35% | 20% |
Non-U.S. Stocks | 15% | 1.5% | 15% | 20% | 15% | 0% |
| U.S. Corp Bonds | 8% | 8.0% | 20% | 0% | 25% | 40% |
| U.S. Treasury Bonds | 7% | 7.0% | 5% | 0% | 20% | 35% |
| Real Estate | 10% | 4.0% | 10% | 20% | 0% | 0% |
| U.S. Treasury Bills | 4% | 4.0% | 30% | 20% | 5% | 5% |
| Expected Total Return | 8.8% | 10.6%% | 10.1% | 8.3%% | ||
| Expected Yield | 4.2% | 2.7% | 4.5% | 6.3% | ||
| Sharpe Measure | 0.20 | 0.21 | 0.26 | 0.27 |
Expert Answer:
A1 Return Objective Calculation The return objective for the fund can be calculated using the spending rate and inflation rate provided Return Objecti... View the full answer
